Bob Smytherman asks....What does 2016 have in store for those of us living in a leasehold flat?

One of the biggest issues facing many parts of the country this winter has been flooding. The FPRA continues to argue that in responding to this ongoing problem, the Government has forgotten about those of us living in flats. For many years there has been an agreement between the insurance industry and the government to provide flood cover for all homes known as the Statement of Principles. This agreement comes to an end in April, when a new system called Flood Re comes into place. The problem with Flood Re is that it excludes the vast majority of the 4.1 million leasehold homes in England and Wales and will only apply to those living in very small blocks.

According to the insurance industry: “Small and medium enterprises (SMEs) and leasehold properties are not included in Flood Re, because there is already an effective and competitive property insurance market covering them. Neither the ABI (Association of British Insurers) nor the Government is currently aware of any evidence to suggest that affordable flood insurance will cease to be widely available for them in the future.” However, at the FPRA we believe the reason there is no evidence is because until now the Statement of Principles has applied to flats.

The insurance industry has been lobbying government to adopt Flood Re since 2011 and DEFRA (Department for Environment, Food and Rural Affairs) had been persuaded to support a new affordable scheme as part of the Water Act 2014. However, during the passage of the Bill groups like the FPRA, ARMA, the British Property Federation (BPF) CML, Leasehold Knowledge Partnership (LKP) the RICS and others tried to tell the Coalition Government they had things wrong. DEFRA were eventually forced to disclose that neither they nor the ABI had any data to differentiate between the risks faced by houses and leasehold homes. Despite this admission, the Government somehow seemed persuaded that there was a commercial benefit in leasehold insurance. When we met the then DEFRA Minister Lib Dem Dan Rogerson, he apparently thought that because it is the landlord’s building, insurance must be a commercial matter, not appreciating that it is the leaseholder who pays 100% of the bill.

The insurance industry has now decided that some leasehold homes should fall under Flood Re so those blocks that fall into Council Tax band H and those with three or fewer flats where the freeholder also lives on the site and leasehold houses can get cheap cover. This simply adds another layer of injustice to an already unfair insurance market for flat owners, who often have to rely on a managing agent to negotiate their premiums which often include significant commissions paid to the agent or landlord. Of course there will be those that say ARMQ-Q and RICS require full disclosure of commissions but I would argue that the only real way to ensure fairness in the system is to ban insurance commissions altogether whether paid direct to the agent or to a third party. This would have the benefit of preventing large managing agents from using commissions to undercut competitors when quoting for property management work.

Just before the election in May, the regulations supporting the Water Act and Flood Re came into force. Flood Re has now been set up as a company to administer the scheme which will become active from April. Until then the Statement of Principles still applies but it will not be long before we find out how much premiums will increase. Given the lack of data, the decision to exclude most leasehold homes from Flood Re is a huge gamble. So far it’s not even clear if the mapping systems used by government and the insurance industry are detailed enough to give accurate information on flood risk for some houses.

As well as the Water Act, there is a new Housing & Planning Bill going through Parliament this year. However, despite a spirited attempt to have the Bill amended to facilitate more Commonhold developments there is little in it to benefit leaseholders!

For the FPRA, 2016 will be our 45th year representing the interests of leaseholders and I would like to welcome new FPRA members in 2016 to benefit from the impartial advice provided by our many honorary consultants. We are now planning our next AGM, so do please check out our website for all the latest information and subscribe to our newsletter. We will continue to lobby Government for a better deal for leasehold home owners.

Bob Smytherman is Chairman of the FPRA

The Federation of Private Residents’ Associations can be contacted as follows: